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Revenue growth at MTCL had faltered from its otherwise industry-leading trajectory,courtesy weakness in top clients exacerbating the already existent traditional pressures.Smaller deal sizes in Digital restricted MTCL's ability to contain headwinds despite it forming a high proportion of revenue.
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With Digital becoming mainstream and top clients seeing stability, we expect a revival in revenue growth momentum. At parallel, margin improvement should be a function of initiatives both at an organic and inorganic level. Following our interaction, we believe that the margin recovery could play out sooner, especially if Magnet360 and Bluefin EBITDAs revert to the black.
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We see MTCL's margins improving to 14.4% by FY19 and potentially by another 110bp to15.5% by FY20, driving 7%/8% upgrade in our earnings estimates for FY19/FY20. Such combination of growth and margin performance warrants a re-rating. Our revised price target of INR600 discounts forward earnings by 15x. We upgrade MTCL to Buy.